Forty Years of Innovation in Chinese Economic Theory

1. Deng Xiaoping’s Original Proposal for Building Socialism with Chinese Characteristics

As an essential element, the economic theory plays a central role within the theoretical system of socialism with Chinese characteristics. To study the formation and development of this economic theory, we must first understand the formation and development of socialism with Chinese characteristics.

Socialism with Chinese characteristics was first proposed by Deng Xiaoping. On September 1, 1982, Deng Xiaoping mentioned in the “Opening Speech at the 12th National Congress of the Communist Party of China”: “We must integrate the universal truth of Marxism with the concrete realities of China, blaze a path of our own and build a socialism with Chinese characteristics—that is the basic conclusion we have reached after reviewing our long history.”

The context in which Deng Xiaoping introduced the idea concerning socialism with Chinese characteristics can be discerned through several key historical factors.

First, it was essential to reflect on and draw lessons from the over 30 years of socialist progress since the People’s Republic of China came into being, especially the overall mistakes of the “Cultural Revolution.” The 11th Central Committee’s Third Plenary Session, held in late 1978, abandoned “taking class struggle as the key link,” shifting the Party’s focus to economic construction while initiating the R&O process. This session fundamentally broke free from the long-existing shackles of “Leftist” mistakes, corrected the ideological orientation of the Party, and reaffirmed the Marxist line with regard to ideological, political, and organizational aspects. Since then, the Party has undertaken a comprehensive review of its historical experience from multiple dimensions, and scientifically expounded many theoretical and policy issues related to socialist construction raised from practice. Later in June 1981, the Sixth Plenary Session formally adopted the “Resolution on Certain Questions in the History of the Party since the Founding of the People’s Republic of China,” which marked the successful finalization of this correction to the Party’s guiding ideology.

Second, the nascent stage of the R&O process showed that China’s economy was full of vitality, and economic growth accelerated as market mechanisms began to take effect. By adopting the “Contract Responsibility System for Households,” rural productive forces saw a significant release, leading to a swift recovery and rapid growth in agricultural output. The combined output value of agricultural, forestry, livestock, and fishery industries in 1982 increased by 29.2% compared with 1978, with an average yearly growth of 6.6%, over twice the historical average growth rate of 2% to 3%. After easing price restrictions on selected farm and sideline products as well as consumer commodities, there was a dramatic surge in market supply capacity, and the same went for other sectors. Pilot programs for special economic zones (SEZs) and efforts to seek foreign investment began to achieve preliminary results. These positive developments reflected the tremendous potential inherent in the country’s R&O efforts, which was quickly recognized and supported by the Chinese people, simultaneously boosting their national confidence.

Third, some visionary people have questioned the traditional economic theory and system of socialism since the 1950s, and have suggested that the construction of socialism should respect objective economic laws, especially the law of value. In 1956, Sun Yefang published an article entitled “Placing planning and statistical work on the basis of the law of value” in the sixth issue of Economic Research Journal. Gu Zhun also published an article entitled “A tentative discussion on commodity production and the law of value under the socialist system” in the same journal (Issue 3, 1957), proposing a bold proposition that allows enterprises to adjust production according to price fluctuations. Yu Guangyuan argued that all types of products in circulation should be recognized as commodities.1 Before the convening of the 11th CPC Central Committee’s Third Plenary Session, an article “Act in accordance with economic laws and accelerate the realization of the Four Modernizations”—penned by Hu Qiaomu and published in the People’s Daily on October 6, 1978—also highlighted the significance of respecting the law of value. All of these provided the ideological and theoretical framework for the commencement of R&O in late 1978 and Deng Xiaoping’s initial proposal of socialism with Chinese characteristics soon after.

Socialism featuring Chinese characteristics is constantly enriched and refined in tandem with evolving practices, especially the R&O practice. The broader R&O initiative has advanced steadily, accompanied by notable economic growth and overall social progress. By 1997, the year of the 15th Congress, socialism with Chinese characteristics was deemed to have established a scientific system. Jiang Zemin elaborated in his congressional report: “To sum up, Deng Xiaoping Theory constitutes a new, scientific system of the theory of building socialism with Chinese characteristics. It has been gradually formed and developed under the historical conditions in which peace and development have become the main themes of the times, in the practice of China’s reform, opening up and modernization drive, and on the basis of reviewing the historical experience of successes and setbacks of socialism in China and learning from the historical experience of the rise and fall of other socialist countries. For the first time, it has given preliminary but systematic answers to a series of basic questions concerning the road to socialism in China, the stages of development, the fundamental tasks, the motive force, the external conditions, the political guarantee, the strategic steps, Party leadership, the forces to be relied on, and the reunification of the motherland. It has guided our Party in formulating the basic line for the primary stage of socialism. It is a fairly complete scientific system which embraces philosophy, political economics and scientific socialism and covers, among other things, the economy, politics, science and technology, education, culture, ethnicity, military and foreign affairs, the united front and Party building. It is also a scientific system which needs to be further enriched and developed in all aspects.”

The report to the 17th Congress advocated supporting and promoting the pivotal project of socialism with Chinese characteristics. It pointed out: “To sum up, the fundamental reason behind all our achievements and progress since the R&O policy was introduced is that we have blazed a path of socialism with Chinese characteristics and established a system of theories of socialism with Chinese characteristics. Essentially, to hold high the great banner of socialism with Chinese characteristics means to keep to this path and uphold this system.” In his important address at the national ceremony commemorating the CPC’s 90th anniversary in 2011, Hu Jintao added the notion of the socialist system with Chinese characteristics. Hu emphasized: “We have embarked on the path of socialism with Chinese characteristics, formed a system of theories of socialism with Chinese characteristics and established a socialist system with Chinese characteristics. These achievements made over 90 years of endeavors, innovation, and enrichment, should be valued, upheld on a long-term basis and continuously built upon by our Party and people.”

“Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” reconstitutes the most recent theoretical innovation in adapting Marxism to China’s realities as well as the latest realm of the theory of socialism with Chinese characteristics. General Secretary Xi Jinping, while making the report to the 19th Congress, highlighted: “With decades of hard work, socialism with Chinese characteristics has crossed the threshold into a new era. This is a new historic juncture in China’s development.” “The Thought makes the following things clear: It makes clear that the overarching goal of upholding and developing socialism with Chinese characteristics is to realize socialist modernization and national rejuvenation, and, that on the basis of finishing the building of a moderately prosperous society in all respects, a two-step approach should be taken to build China into a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful by the middle of the century. It makes clear that the principal contradiction facing Chinese society in the new era is that between unbalanced and inadequate development and the people’s ever-growing needs for a better life. We must therefore continue commitment to our people-centered philosophy of development, and work to promote well-rounded human development and common prosperity for everyone. It makes clear that the overall plan for building socialism with Chinese characteristics is the five-sphere integrated plan, and the overall strategy is the four-pronged comprehensive strategy. It highlights the importance of fostering stronger confidence in the path, theory, system, and culture of socialism with Chinese characteristics. It makes clear that the overall goal of deepening reform in every field is to improve and develop the system of socialism with Chinese characteristics and modernize China’s system and capacity for governance. It makes clear that the overall goal of comprehensively advancing law-based governance is to establish a system of socialist rule of law with Chinese characteristics and build a country of socialist rule of law. It makes clear that the Party’s goal of building a strong military in the new era is to build the people’s forces into world-class forces that obey the Party’s command, can fight and win, and maintain excellent conduct. It makes clear that major country diplomacy with Chinese characteristics aims to foster a new type of international relations and build a community with a shared future for mankind. It makes clear that the defining feature of socialism with Chinese characteristics is the leadership of the Communist Party of China; the greatest strength of the system of socialism with Chinese characteristics is the leadership of the Communist Party of China; the Party is the highest force for political leadership. It sets forth the general requirements for Party building in the new era and underlines the importance of political work in Party building.” “The Thought builds on and further enriches Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents, and the Scientific Outlook on Development. It represents the latest achievement in adapting Marxism to the Chinese context and encapsulates the practical experience and collective wisdom of our Party and the people. It is an important component of the theory of socialism with Chinese characteristics, and a guide to action for all our members and all the Chinese people as we strive to achieve national rejuvenation. This Thought must be adhered to and steadily developed on a long-term basis.” The report also lists the following 14 aspects of the essence of the Thought: (1) Upholding the Party’s leadership across all sectors of society. (2) Staying committed to the people-oriented development philosophy. (3) Advancing comprehensive and in-depth reforms. (4) Embracing a new development vision. (5) Safeguarding the people’s right to fully act as masters of the nation. (6) Advancing law-based governance across all areas of state affairs. (7) Adhering to core socialist values. (8) Enhancing and safeguarding people’s livelihoods through development. (9) Promoting harmonious coexistence between humanity and nature. (10) Adopting a comprehensive strategy toward national security. (11) Maintaining the Party’s unconditional leadership of the people’s armed forces. (12) Remaining committed to the principle of “one country, two systems” while advancing the cause of national reunification. (13) Championing the idea of a common future community for all mankind. (14) Enforcing comprehensive and strict governance over the Party.

The economic theory is an integral part of the broader theory of socialism with Chinese characteristics. With the comprehensive theoretical system deepening, China’s economic practice advances in tandem, given that China’s R&O originated primarily within the economic sector. Therefore, the most dazzling highlights of socialism with Chinese characteristics include several key theoretical achievements. These encompass theories on socialist market economy, the primary stage of socialism, the fundamental economic system during this stage, the establishment of a modern market system, and macroeconomic management with indirect management as the mainstay. These also include the distribution theory that prioritizes work-based distribution while allowing multiple forms to coexist, the theory developing from development as a top priority and the Scientific Outlook on Development to the new development philosophy featuring innovative, coordinated, green (as in environmentalism), open and shared development, the theory of the coordinated advancement of new-type industrialization, IT application, urbanization and agricultural modernization, the theory of making full use of both domestic and international markets as well as both home and overseas resources, the theory of China’s economic development entering a new normal phase and advancing supply-side structural reforms, the theory of building a modernized economy, etc.

2. Socialism With Chinese Characteristics: The Sole Path Conforming to China’s Primary Stage Reality

Socialism with Chinese characteristics is a historic achievement that the Chinese Communists proposed to follow independently, following a period of arduous exploration after 1949. Why was this so difficult? The main reason is that during a certain period subsequent to the establishment of the People’s Republic, as there was no successful precedent to follow, the Chinese had to explore on their own. Especially regarding the accurate understanding of their national conditions, the Chinese had to proceed from the reality instead of replicating other models. To engage in socialist construction, it was entirely up to them to explore. However, the exploration turned out to be slow progress and often over-ambitious intentions. As a result, a great many detours have been taken: more haste, less speed.

Then, what are China’s most fundamental national conditions? The most significant factor to take into account is not the large population, nor the large land area, nor yet the abundance of resources: it is rather that China remains in the primary phase of socialism, and this condition will persist for an extended period. This is the most far-reaching and fundamental element of its national conditions, viewed from the nature of economic society, as well as the stage of social progress. To build socialism, first of all, we must proceed from this biggest and most basic reality. The primary stage of socialism means that socialism in China is, as yet, in an underdeveloped stage. China embarked on socialism with very underdeveloped social productive forces and had to go through quite a long historical stage to realize the industrialization, urbanization, marketization, and modernization achieved by many developed nations within capitalist frameworks. Deng Xiaoping noted in April 1980: “We should research earnestly how to carry out socialist development. At this time, we are reviewing the experience gained in the past three decades since the founding of the People’s Republic. To sum up, it is as follows. First, we should not adopt ‘Leftist’ policies by divorcing ourselves from reality or skipping over necessary stages. Otherwise, the task of building socialism will not be accomplished. We have suffered losses from ‘Leftist’ policies. Second, whatever we do must contribute to developing the productive forces.”2 The Sixth Plenary Session of the 11th CPC Central Committee (June 1981) first explicitly stated: “Our socialist system is still in the primary stage.” In August 1987, Deng Xiaoping emphasized again: “The Thirteenth National Party Congress will explain what stage China is in: the primary stage of socialism. Socialism itself is the first stage of communism, and here in China we are still in the primary stage of socialism—that is, the underdeveloped stage. In everything we do we must proceed from this reality, and all planning must be consistent with it.”3

The theory of the primary stage of socialism, notably, is not only a fundamental element of scientific socialism, but also that of the economic theory featuring socialism with Chinese characteristics. Efforts to develop and disseminate this theory were also supported by Chinese economists. Su Shaozhi and Feng Lanrui (1979) took the lead in publishing an article, frankly admitting China had not truly finished building socialism and was “still in an underdeveloped socialist society and in a transitional period of socialism.”4 In 2008, Yu Guangyuan remarked: “In 1981, when I participated in drafting the ‘Resolution on Certain Questions in the History of Our Party Since the Founding of the People’s Republic of China,’ I advocated that the judgment that our country was still in the ‘primary stage of socialism’ should be written down into the file so as to have a deeper understanding of the detours that had been taken. At that time, some comrades did not agree to do this, and there were disputes. But in the end, the concept of the ‘primary stage of socialism’ was written down.”5

The 13th Congress presented the first systematic exposition of the primary stage of socialism. According to it, “China is now in the primary stage of socialism. There are two aspects to this thesis. First, the Chinese society is already a socialist society. We must persevere in socialism and never deviate from it. Second, China’s socialist society is still in its primary stage. We must proceed from this reality and not jump over this stage. Under the specific historical conditions of contemporary China, to believe that the Chinese people cannot take the socialist road without going through the stage of fully developed capitalism is to take a mechanistic position on the question of the development of revolution, and that is the major cognitive root of ‘Right’ mistakes. On the other hand, to believe that it is possible to jump over the primary stage of socialism, in which the productive forces are not to be highly developed, is to take a utopian position on this question, and that is the major cognitive root of ‘Left’ mistakes.” “Precisely because our socialism has emerged from the womb of a semi-colonial, semi-feudal society, with the productive forces lagging far behind those of the developed capitalist countries, we are destined to go through a very long primary stage. During this stage we shall accomplish industrialization and the commercialization, socialization and modernization of production, which many other countries have achieved under capitalist conditions.” “How do things stand in China, now that socialism has been developing here for more than three decades? On the one hand, a socialist economic system based on public ownership of the means of production has been instituted, a socialist political system of people’s democratic dictatorship has been established, and the guiding role of Marxism in the realm of ideology has been affirmed. The system of exploitation and the exploiting classes have been abolished. China’s economic strength has grown enormously and educational, scientific, and cultural undertakings have considerably expanded. On the other hand, the country has a huge population and a poor foundation to start with, and its per capita GNP still ranks among the lowest in the world. The picture is very clear: Out of a population of more than one billion, 800 million people live in rural areas and, for the most part, still use hand tools to make a living. A certain number of modern industries coexist with many industries that are several decades or even a century behind present-day standards. Some areas that are fairly developed economically coexist with vast areas that are underdeveloped and impoverished. A small amount of science and technology is up to the highest world standards while the scientific and technological level as a whole is low, and nearly one-quarter of the population is still illiterate or semi-literate. The backwardness of the productive forces determines the following aspects of the relations of production: socialization of production, which is essential for expanded socialist public ownership, is still at a very low level; the commodity economy and domestic market are only beginning to develop; the natural economy and semi-natural economy constitute a considerable proportion of the whole; and the socialist economic system is not yet mature and well developed. In the realm of the superstructure, several economic and cultural conditions that are necessary if we are to promote a high degree of socialist democracy are far from ripe, and decadent feudal and capitalist ideologies and the small-producers’ force of habit still have widespread influence in society and often corrode Party officials and public servants. All this shows that we still have a long way to go before we can advance beyond the primary stage of socialism.” “It will be at least 100 years from the 1950s, when the socialist transformation of private ownership of the means of production was basically completed, to the time when socialist modernization will have been in the main accomplished, and all these years belong to the primary stage of socialism. This stage is different from both the transitional period, in which the socialist economic basis was not yet laid, and the stage in which socialist modernization will have been achieved. The principal contradiction we face during the present stage is the contradiction between the ever-growing material and cultural needs of the people and backward production. Class struggle will continue to exist within certain limits for a long time to come, but it is no longer the principal contradiction. To resolve the principal contradiction of the present stage, we must vigorously expand the commodity economy, raise labor productivity, gradually achieve the modernization of industry, agriculture, national defense, and science and technology and, to this end, reform such aspects of the relations of production and of the superstructure as are incompatible with the growth of the productive forces.”